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Same Year for All Three Hospitals

Hospital 1 Hospital 2 Hospital 3

Current liabilities $100,000 20% $500,000 25% $400,000 80%

Long-term debt 400,000 80% 1,500,000 75% 100,000 20%

Total liabilities $500,000 100% $2,000,000 100% $500,000 100%

14.1 COMMON SIZING The process of common sizing puts information on the same relative basis. Generally, common sizing involves converting dollar amounts to percentages. If, for example, total revenue of $200,000 equals 100%, then radiology revenue of $20,000 will equal 10% of that total. Converting dollars to percentages allows comparative analysis. In other words, comparing the percentages allows a common basis of comparison. Common sizing is sometimes called “vertical analysis” (because the computation of the percentages is vertical).

Although such comparisons on the basis of percentages can, and should, be performed on your own organization’s data, comparisons can also be made between or among various organizations. For example, Table 14–1 (http://content.thuzelearning.com/books/Baker.6866.18.1/sections/ch14_sect1_1#ch14_tbl1) shows how common sizing allows a comparison of liabilities for three different hospitals. In each case, the total liabilities equal 100%. Then the current liabilities of hospital 1, for example, are divided by total liabilities to find the proportionate percentage attributable to that line item (100,000 divided by 500,000 equals 20%; 400,000 divided by 500,000 equals 80%). When all the percentages have been computed, add them to make sure they add to 100%. If you use a computer, computation of these percentages is available as a spreadsheet function.

Table 14–1 Common Sizing Liability Information

Another example of comparative analysis is contained in Table 14-2

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Same Year for All Three Hospitals

Hospital 1 Hospital 2 Hospital 3

General services expense

Dietary $320,000 40% $1,260,000 42% $450,000 50%

Maintenance 280,000 35% 990,000 33% 135,000 15%

Laundry 80,000 10% 300,000 10% 90,000 10%

Housekeeping 120,000 15% 450,000 15% 225,000 25%

Total GS expense $800,000 100% $3,000,000 100% $900,000 100%

(http://content.thuzelearning.com/books/Baker.6866.18.1/sections/ch14_sect1_1#ch14_tbl2) . In this case, general services expenses for three hospitals are compared. Once again, the total expense for each hospital becomes 100%, and the relative percentage for each of the four line items is computed ($320,000 divided by $800,000 equals 40% and so on). The advantage of comparative analysis is illustrated by the “laundry” line item, where the dollar amounts are $80,000, $300,000, and $90,000 respectively. Yet each of these amounts is 10% of the total expense for the particular hospital.

Table 14–2 Common Sizing Expense Information

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